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Pediapharm Announces Second Quarter Financial Results-Revenue More Than Doubled from First Quarter

MONTREAL, QUEBEC–(Marketwired – Nov. 28, 2016) -

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Pediapharm Inc. (the “Company”) (TSX VENTURE:PDP) is pleased to file its second quarter financial results ended September 30, 2016. All dollar amounts are expressed in Canadian currency unless otherwise indicated and results are reported in accordance with IFRS accounting principles.

KEY HIGHLIGHTS – PERIOD ENDED SEPTEMBER 30, 2016

In the three month period ended September 30, 2016, total revenue reached $1,882,147 (three months ended September 30, 2015 – $1,471,734), representing an increase of 28% including:

25% increase from NYDA®

56% increase from Naproxen Suspension

In the six month period ended September 30, 2016, total revenue reached $2,775,308 (six months ended September 30, 2015 – $2,007,376), representing an increase of 34% including:

33% increase from NYDA®

83% increase from Naproxen Suspension

On September 19, 2016, the Company signed an exclusive licensing agreement for drug product Relaxa®. Under the terms of the Licensing Agreement, Pediapharm has the exclusive right to manufacture, promote, market, sell and distribute Relaxa® globally. Annual sales of Relaxa®, based on the trend of the last 12 months, is approximately $3 million. However, the timing of the transaction, which occurred in late September, allowed for very few revenue-generating days in the three months ended September 30, 2016. The real impact of that transaction started in the three months that will end on December 31, 2016.

The addition of Relaxa® brings the Company into a positive operating cash flow situation based on a rolling 12-month timeframe. This does not include the investments on the upcoming product launches (Rupatadine in January and possibly Otixal later in 2017, assuming Health Canada approval).

The Company has working capital of over $6,000,000 as of September 30, 2016.

On July 21, 2016, the Company announced Health Canada’s approval of rupatadine (Tablet 10mg and Oral Solution 1mg/mL) for the relief of the symptoms associated with Seasonal Allergic Rhinitis (SAR), Perennial Allergic Rhinitis (PAR) and Chronic Spontaneous Urticaria (CSU) in patients 2 years of age and older. Many pre-commercial launch activities have already taken place in advance of the January 2017 commercial launch, when the product will be available to the Canadian market.

On August 3, 2016, the Company submitted to the Canadian Health Authorities its regulatory dossier of CUVPOSA™ (glycopyrrolate) oral solution intended for pediatric chronic severe drooling (sialorrhea) associated with neurologic conditions such as cerebral palsy.

“We are very excited about the progress we have made so far this year”, stated Sylvain Chretien, President and Chief Executive Officer of Pediapharm. He added: “A few years ago, we committed to quickly grow our company’s revenue to $8 million, which represents our break-even point in our normal operations. With the recent addition of Relaxa, we are pleased to say that we have now achieved this goal on an annual basis, with a lot more growth to come. As exciting is the fact that there are still products yet to be launched, including Rupatadine in January 2017. While these launches will require investments based on their potential, we are able and committed to doing it with our existing working capital.”

FUTURE OUTLOOK

The Company’s focus remains to execute its commercial plan with existing products, such as NYDA®, a revolutionary treatment indicated for eradication of head lice and its eggs. NYDA® reached over $3,200,000 in revenue in fiscal 2016, is expected to reach $4,400,000 in fiscal 2017 and has the potential to achieve annual peak revenues of $6,000,000 to $8,000,000 within the next two years (IMS data and Management’s estimate).

With NYDA, Naproxen Suspension and Relaxa® alone, the Company is confident to generate over $8.5 million of revenue in FY2018 (year ended March 31, 2018). This does not include revenue from upcoming launches. Management’s objective in the next few quarters is to optimize the rupatadine launch investments while keeping a solid balance sheet. The on-going positive feedback from key opinion leaders in allergy confirms Management’s estimate that rupatadine has an annual peak sale potential of $8-10 million within 5-6 years.

Pediapharm has a product pipeline of secured exclusive agreements which management believes will enable the Company to obtain its corporate annual revenue goal of reaching between $25,000,000 and $30,000,000 within the next 5-6 years. This projected peak sales forecast is based in using IMS data and the Management’s estimate in the market share to be captured for each of the product. As described below, projected annual peak sales to be generated from existing licenses/products that have not yet been launched and/or require Health Canada approval are estimated at $15,000,000 (IMS data and Management’s estimate).

The chart below contains information on the secured exclusive agreements that are expected to be launched in the next year. This chart is similar to the last MD&A dated August 18, 2016.

PRODUCT

PARTNER-COUNTRY

INDICATION

MARKET SIZE (CDN $)

EST. ANNUAL PEAK SALES (CDN$) (2) (6)

EST. LAUNCH DATE (Calendar Year) (7)

Rupatadine

Uriach – Spain

Antihistamine (RX Indication)

120M (5)

6M-10M

APPROVEDJULY 21, 2016

Cetraxal-Plus (Otixal) (1)

Salvat Laboratories – Spain

Ear Infection, Swimmer’s Ear

25M (4)

4M

Q-4 2016

Cuvposa (1)

Merz Pharma – USA

Severe Drooling – Cerebral Palsy

25M (3)

5M

Q-2 2017

TOTAL

170M+

15M- 19M

(1)

Canadian License which requires Health Canada Approval

(2)

Estimated Annual Peak sales is usually achieved within approximately 5 to 7 years of a product launch

(3)

Based on prevalence of Cerebral Palsy patients from the Public Health Agency of Canada

(4)

IMS Data – December 2014

(5)

IMS Data – December 2013

(6)

Based on Market Data (see above footnotes) and Management’s estimates

(7)

Based on Health Canada’s timelines regarding approval of submitted files

Now that Pediapharm has positioned itself with a strong pipeline as shown above, for which most of the regulatory investments are behind, the Company’s core strategy regarding business development has recently evolved to focus more on acquisitions of products with existing sales and on co-promotion for products already approved in Canada. The key objective is to generate profitability in a timely fashion while pursuing the regulatory process for Cuvposa, which was submitted to Health Canada in August 2016. In parallel, Pediapharm will still assess additional exclusive licensing agreements (commonly known as “in-licensing”) as well as potential product acquisitions.

In summary, the Company has a solid cash position to execute its business plan, including the upcoming launch of rupatadine in early 2017 as well as the potential launch of Otixal®, assuming Health Canada’s approval. Furthermore, Pediapharm expects continuous strong revenue growth from Pediapharm branded products such as NYDA®, Naproxen Suspension and Relaxa®. In parallel, the Company is in the process of assessing potential product acquisitions with the key objective to accelerate its strategy to generate positive cash flow over a short period of time. Pediapharm is a growth company in the high-margin specialty pharmaceutical industry, and when opportunities arise to feed that growth, it may raise incremental capital to provide for necessary funding and flexibility.

REVIEW OF OPERATING RESULTS FOR THE PERIOD ENDED JUNE 30, 2016

REVENUE

For the three months ended September 30, 2016, total revenue reached $1,882,147 compared with revenue of $1,471,734 in the three months ended September 30, 2015, representing a 28% increase. Revenue from NYDA® increased by 25% and revenue from Pediapharm naproxen suspension increased by 56%. While annual sales of Relaxa®, based on the trend of the last 12 months, is approximately $3 million, the timing of the Relaxa® transaction, which occurred in late September 2016, allowed for few revenue-generating days in the three months ended September 30, 2016.

For the six months ended September 30, 2016, total revenue reached $2,775,308 compared with revenue of $2,077,376 in the six months ended September 30, 2015, representing a 34% increase. Revenue from NYDA® increased by 33% and revenue from Pediapharm naproxen suspension increased by 83%.

SELLING AND ADMINISTRATIVE EXPENSES

For the three months ended September 30, 2016, selling and administrative expenses reached $1,788,085, (three months ended September 30, 2015 — $1,688,949). The increase in selling and administrative expenses is mainly due to the investments made in supporting and preparing the upcoming commercial launch of rupatadine following its Health Canada approval in July 2016.

For the six months ended September 30, 2016, selling and administrative expenses decreased by $176,434 to reach $3,275,609, (six months ended September 30, 2015 — $3,452,043). The decrease in selling and administrative expenses is mainly due to the fact most of the expenses in business development and medical affairs related to the filing of agreements signed in 2014 occurred in the fiscal year ended March 31, 2016.

OTHER INCOME

In the three months ended September 30, 2016, there was nothing to report as other income. In the six months ended September 30, 2016 the Company received the second and final payment of US$2 million in cash from the sale of the US rights to the drug Naproxen Suspension in a transaction valued at approximately US$4.25 million.

OPERATING PROFIT OR LOSS

The operating loss for the three months ended September 30, 2016 was $580,116 compared to an operating loss of $752,688 in the three months ended September 30, 2015. The increase in revenue and gross profit was the main reason for that improvement of $172,572 over the three-month period ended September 30, 2015.

The operating profit for the six months ended September 30, 2016 was $1,111,668 compared to an operating loss of $2,149,651 in the six months ended September 30, 2015. The increase in revenue and gross profit, along with the aforementioned reduction in selling and administrative expenses, helped generate an improvement of $691,119 over the six-month period ended September 30, 2015. Furthermore, the Company benefited from the aforementioned sale of its US rights to the drug Naproxen Suspension, which had a positive impact of $2,570,200 in the six months ended September 30, 2016, bringing the total operating profit improvement to $3,261,319 when compared to the six-month period ended September 30, 2015.

NET PROFIT OR LOSS

The net loss for the three months ended September 30, 2016 was $838,320 compared to a net loss of $954,011 in the three months ended September 30, 2015. In the three months ended September 30, 2016, the difference between operating loss and net loss is mainly due to $270,634 in finance costs. The majority of the aforementioned finance costs are related to the March 31, 2015 private placement of secured, convertible debentures of the Company and share purchase warrants of the Company for aggregate gross proceeds of $5,500,000.

The net profit for the six months ended September 30, 2016 was $604,475 compared to a net loss of $2,548,657 in the six months ended September 30, 2015. In the six months ended September 30, 2016, the difference between operating loss and net loss is mainly due to $531,986 in finance costs. The majority of the aforementioned finance costs are related to the March 31, 2015 private placement of secured, convertible debentures of the Company and share purchase warrants of the Company for aggregate gross proceeds of $5,500,000.

September 30, 2016 (3 months)

September 30, 2015 (3 months)

September 30, 2016 (6 months)

September 30, 2015 (6 months)

Revenue from Products

$1,803,397

$1,455,459

$2,614,643

$1,997,628

Revenue from Commissions

78,750

16,275

160,665

79,748

TOTAL Revenue

1,882,147

1,471,734

2,775,308

2,077,376

Cost of sales

661,228

517,254

950,839

729,168

Gross Profit

1,220,919

954,480

1,824,468

1,348,208

Selling and administrative expenses

1,788,085

1,688,949

3,275,609

3,452,043

Other Income

-

-

2,570,200

-

Operating profit (loss)

(580,116

)

(752,688

)

1,111,668

(2,149,651

)

Net profit (loss)

(838,320

)

(954,011

)

604,475

(2,548,657

)

Cash flow from (used in) operating activities

(1,303,782

)

(1,125,626

)

254,771

(2,464,996

)

Cash flow from (used in) investing activities

(82,570

)

(284,129

)

(85,570

)

(287,968

)

Cash flow from (used in) financing activities

-

(1,064

)

(377

)

69,902

About Pediapharm Inc.

Pediapharm is the only Canadian specialty pharmaceutical company dedicated to serving the needs of the pediatric community. Its mission is to bring to the Canadian market the latest innovative pediatric products with the objective to improve the health and the well-being of children in Canada. Since its debut in 2008, Pediapharm has entered into numerous commercial agreements with partners from Canada and other countries around the world. The company’s innovative product portfolio includes NYDA®; a breakthrough treatment for head lice; EpiCeram® a non-steroid emulsion for eczema; naproxen suspension, indicated to treat pain and inflammation due to various conditions, including Juvenile Idiopathic Arthritis; and a broad pipeline of products under registration.

FORWARD LOOKING STATEMENTS

This news release contains forward-looking statements and other statements that are not historical. Such forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to vary materially from target results and the results or events predicted in these forward-looking statements. As a result, investors are cautioned not to place undue reliance on these forward-looking statements.

The forward-looking statements contained in this news release are made as of the date of this release. Except as required by applicable law, the Corporation disclaims any intention and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking information reflects the current expectations or belief of the Corporation based on information currently available and such information is subject to a number of assumptions, risks and uncertainties described in details at pp. 35 to 41 of the Management Information Circular of Chelsea Acquisition Corporation dated November 12, 2013 available on SEDAR at www.sedar.com and other risks associated with being a specialty pharmaceutical company.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.